SALEYARD lamb prices expected to remain near-record highs because of strong export demand, dry seasonal conditions and low Australian and New Zealand flock numbers, according to ABARES’ latest agricultural commodities report for the 2020 March quarter.
ABARES said livestock prices generally are expected to soften over the medium-term but remain high, although coronavirus poses a significant risk as Chinese demand for agricultural products has declined under outbreak restrictions.
Strong demand from China in response to consumers seeking a replacement for pork is likely to continue to place upward pressure on lamb prices, the forecaster said.
Saleyard lamb prices are forecast to reach record levels in 2019-20, declining over the medium term but remaining historically high. ABARES is forecasting the weighted average saleyard price for lamb to fall 2pc to 774c/kg cwt in 2020-21.
Dry seasonal conditions across much of Australia are likely to continue to constrain lambing, restricting supply and reinforcing the upward pressure on prices. Lamb prices are also likely to continue to be supported by strong demand from China and supply constraints in Australia and New Zealand.
ABARES said flock numbers in both countries are at historic lows and rebuilding in Australia is likely to be slow because high prices encourage high rates of lamb turn-off. Demand in China is expected to remain strong as a result of the slow recovery of the pig herd from African swine fever (ASF) and gradual income-related increases in overall protein demand, the forecaster said.
In 2019-20, the national sheep flock is expected to shrink to core breeding stock. This will limit turn-off and support elevated saleyard prices for sheep. ABARES said over the medium term, sheep saleyard prices are expected to moderate in response to easing demand from China as the pig herd recovers and flock rebuilding commences in Australia and New Zealand.
Click here for the ABARES sheep meat report.
Merino wool prices supported by apparel demand
ABARES said the benchmark Eastern Market Indicator for wool price is forecast to be lower in 2019-20, but superfine, fine and medium micron Merino wool prices will be supported over the medium term to 2024-25 by growing demand for woollen apparel. Slow recovery in Australian and global Merino wool production is expected to limit growth in the world supply of apparel wool and improved seasonal conditions are expected to restore wool fibre quality. This will support recovery in superfine wool price premiums.
The EMI is projected to grow in US real terms over the medium term to 2024-25, while a relatively weak Australian dollar is expected to continue to support high returns for Australian wool growers, ABARES said.
The forecaster said that as a result of falling domestic consumption and exports, Chinese textile makers built up a stockpile of wool and woollen textiles during 2019. This reduced Chinese demand for raw wool imports and resulted in a 33.5pc decrease in the unit value of wool exports from Australia to China from September 2018 to September 2019.
Australian greasy wool exports to China were down by 11.5pc year-on-year in 2018 and a further 8.4pc in 2019. Demand for raw wool is expected to recover once remaining stockpiles are consumed, and other prevailing drivers of low demand, such as the coronavirus (COVID-19) outbreak, are resolved.
ABARES said the price of Australian mulesed wool is expected to be discounted against prices for merino wool from New Zealand, South Africa, Argentina and Uruguay.
Natural fibres are expected to continue their long-term trend of contracting as an overall share of consumption. Consumption of cotton in textiles is projected to increase by an average of 1.4pc per year between 2019-20 and 2024-25, to reach 28.6 million tonnes. Consumption of wool is projected to increase on average by 0.8pc per year, to reach 1.19 million tonnes in 2024-25.
Click here for the ABARES natural fibres report.
Farm production value holds despite bushfires and drought
ABARES’ chief commodity analyst Peter Gooday said the value of farm production in fiscal 2019-20 was expected to fall slightly to $59 billion, down on the previous year’s $62 billion and above the 10-year average due to higher prices for livestock and some other agricultural commodities.
“Widespread bushfires over the 2019–20 summer are not expected to have had a significant impact on the agricultural sector on the whole.
“The bushfires and smoke impacts in some areas were locally devastating. The majority of Australia’s agricultural production and exports, however, takes place outside the affected areas,” Mr Gooday said while launching the latest Agricultural Commodities report at the ABARES Outlook 2020 conference in Canberra.
“Farm production and average farm incomes are estimated to have fallen for a second straight year in drought regions, with incomes for all broadacre farms projected to fall 8pc to $153,000 per farm in 2019-20 – around 4pc below the 10-year average,” he said.
“In NSW, we are expecting farm cash incomes to be close to zero this year.
“As bad as things have been at a state level in the last 20 years – and some regions are substantially worse than the average,” he said.
Mr Gooday said meat and livestock prices have stayed high as African swine fever (ASF) has decimated China’s swineherds, driving red meat prices up and requiring Chinese consumers to look elsewhere. Without those good prices, this year would look a lot worse, he said.
Mr. Gooday said that in 2019–20 Australia would have the lowest number of beef cattle since 1990 and lowest sheep flock since 1904, with production 12pc lower than five years ago.
“Over the medium term to 2024–25, a gradual recovery in the production of livestock and livestock products is expected to follow herd and flock rebuilding, although recovery will take several years and livestock related production in 2024–25 will still be 8pc below the 2014–15 peak.
“The value of Australia’s agricultural exports overall is forecast to fall by 11pc to $43 billion in 2019-20, which in real terms is 16pc below the record value of exports in 2016–17, reflecting three consecutive annual falls in crop exports,” he said.
“We can expect grains and oilseeds exports to rebound quickly, but livestock numbers will take some time to recover and for cotton the speed of recovery will depend on how quickly irrigation storages are replenished.
“The signing of phase one of a trade deal between the United States and China is a welcome sign of easing tensions,” Mr Gooday said.
“But the deal contains some very ambitious targets for agricultural imports, and the implications of that for Australian agriculture are not yet clear.”
Click here for the full ABARES March 2020 quarter agricultural commodities report.